The Hindu Business Line : Fixed deposit market losing flavour?

THE fixed deposit market in India is shrinking by the day with more corporates deciding to pull out by suspending their deposit schemes, at least temporarily.

Tata Tea is the latest blue chip outfit that has stopped offering FDs to investors, joining a long list of companies that have taken a similar decision in the recent past.

No reasons have been officially mentioned; depositors have been simply informed that there will be no renewal of deposits.

The development is being attributed to the relative unattractiveness of FD schemes when compared with some of the other forms of investments, especially mutual funds that are growing in stature on a national scale.

The urban market for FDs, even in a reasonably traditional and risk-averse centre, Kolkata, has become considerably smaller, according to sources associated with this market for long.

A string of slip-ups - CRB, Prudential, Lloyds or the more recent instance of Duncans Industries - has added to the woes of the regular FD investor. However, in an era when interest rates were higher, depositors had found value in these FDs, it is pointed out.

There were, for instance, a good number of takers for Tata Tea's offer, which in 2000 had provided 11 per cent on a minimum non-cumulative deposit of Rs 25,000 for three years.

"This was a Triple-A rated company, seen as an important player in what was still an active FD market," said a well-known intermediary based in Kolkata, adding that the company had an elaborate infrastructure for servicing the scheme, courtesy the involvement of top managers such as Eastern Financiers, JM Morgan Stanley, Bajaj Capital and Integrated Enterprises.

That FDs are a dying breed is evident from the decline in the FD-related business of the credit rating agencies.

According to Mr P.K. Choudhary, chief of ICRA, these deposits were largely popularised by the non-banking finance companies (NBFCs), many of which have not been able to sustain their activities.

"FDs have lost their appeal for both the issuer and the investor. The latter has been affected because of falling interest rates. For a company, deposits are a costly proposition. Also, these are not a very stable source of funding. Premature withdrawals happen at the first sign of trouble," he said, adding that ICRA has identified opportunities in rating of bonds and debentures as well as in securitisation.

A section of the investor community, however, still goes by good deposit schemes.

Distribution circles feel that the market for FDs from companies that have genuinely followed the Companies (Acceptance of Deposits) Rules, 1975, may not disappear completely. As one of them point out, a few of the better-known players, some of them AAA-rated, are still collecting deposits.

These also include public-sector names like NTPC, which runs several categories of schemes, both cumulative and non-cumulative.

Those who are interested in monthly income are required to put in a minimum Rs 1 lakh in order to get 5.75 per cent per month for a three-year period.

Article E-Mail :: Comment :: Syndication

Stories in this Section
Fixed deposit market losing flavour?

Coke sludge not hazardous, says Kerala pollution board

SPIC turns sick, referred to BIFR

Inter-State gas pipelines under single co likely

ONGC to buy Cairn's stake in 2 oil, gas blocks for $100 m

BSE to allow listing of cos with Rs 3-cr capital

`Accreditation of labs need of the hour'